Rachel Reeves spending plans in tatters after welfare rebellion (Image: Getty)
A Cabinet Minister has warned there will be “financial consequences” to the Government’s concessions to welfare rebels. Chancellor of the Duchy of Lancaster Pat McFadden indicated that the fiscal fallout will be set out at the budget expected in the autumn. He declined to rule out tax rises after Labour’s welfare concessions to backbenchers.
Labour faces renewed speculation over its tax plans after concessions to the party’s welfare rebels left a ￡4.8 billion hole in Rachel Reeves’s spending plans. Mr McFadden said “This is a decision that will have financial consequences. The process of the last couple of weeks does have financial consequences.
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“They will all be taken together with all the other moving parts that there are in the economy, in the fiscal picture at the budget, and that will be set out at the time.
“But I’m not denying that when you set out on a plan that has a cost attached to it, and then you have to change that or take it forward in slower time, that is a decision with financial consequences.”
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The concessions, including the last-minute shelving of plans to restrict eligibility for personal independence payments (Pip), were enough to head off the Government’s first Commons defeat on Tuesday evening.
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But they also removed a key plank of Sir Keir Starmer’s welfare reform agenda, delaying changes to Pip until after a review of the benefit not due to conclude until autumn 2026.
With no clarity on when the changes will be enacted or what they might entail, the Chancellor now faces a fiscal headache as a forecast ￡4.8 billion in welfare savings have been whittled away to nothing.
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Asked whether economists were right that tax rises look likely, Mr McFadden: “This is one moving part of the budgetary picture, it does have a financial consequence yesterday.
“I’m not going to speculate on where the budget lands, because there are so many other different moving parts in it, and it wouldn’t make sense for me to do that.”
Asked explicitly whether he could rule out tax rises, Mr McFadden said: “I’m not going to speculate on the budget.
“We will keep to the tax promises that we made in our manifesto when we fought the election last year. But it doesn’t make sense for me to speculate on something where, as I say, there are so many moving parts of which this is only one element.”
Economists at the Institute for Fiscal Studies (IFS) and Resolution Foundation think tanks warned that Tuesday’s concessions meant Ms Reeves could now expect no “net savings” by 2029/30 – a key year for meeting her fiscal targets.
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IFS deputy director Helen Miller said the move had effectively halved the Chancellor’s “margin of error” against her main fiscal rule, once again raising the possibility of tax rises in the autumn.
On top of that, a stuttering economy and global instability could mean she has even less room for manoeuvre than expected.
Ms Miller said: “Since departmental spending plans are now effectively locked in, and the Government has already had to row back on planned cuts to pensioner benefits and working-age benefits, tax rises would look increasingly likely.”